First Timers Guide to Contracting

Transcription

1 First Timers Guide to Contracting 12 St Peter s Court, St Peter s Street, Colchester, Essex, CO1 1WD Tel:

2 Contents Page Message from the Managing Director Message from the Managing Director Summary Starting Out New to the UK? Myths and facts about Umbrella Companies What is IR35 What Determines if a Contract is Inside or Outside IR35? What does it mean if I am Inside IR35? Can I claim expenses? < 3 > < 4 > < 4 > < 4 > < 5 > < 7 > < 7 > < 7 > < 8 > Welcome. At ContractorUmbrella we believe that your Umbrella Company should do more for you than just process your payments; they should be available to answer your queries, deal with your paperwork, liaise with your agency/client and make your life as a contractor as hassle-free as possible. We are totally committed to excellent customer service and we will always go that extra mile for those levels and a unique money back guarantee for total peace of mind. The umbrella company industry is surrounded by increasingly complicated legislation and compliance is necessary for survival. To this end ContractorUmbrella Ltd has invested heavily in constantly reviewing and updating internal processes as well as legal advice from top UK employment specialist lawyers Blake Lapthorn. We have taken this approach to ensure that everyone working with us will have complete peace of mind. informative. We have tried to make it as simple as possible but some of the legislation is quite involved; for this reason all our clients have a highly trained personal Account Manager who is there to answer any questions. For further information you may like to visit our website at Alternatively you can speak to one of our experts on or us at info@contractorumbrella.com. Kind regards, Payroll and taxation < 8 > Lisa Keeble Frequently asked questions Client references < 9 > < 10 > Lisa Keeble Managing Director Special offers via our Members Services section < 11 > About ContractorUmbrella Ltd. < 12 > < 12 > 8 January :37 PM Page < 2 > 8 January :37 PM Page < 3 >

3 Summary This brief summary is designed to address some of the most common questions asked by our clients. For more detailed information on the subject please refer to the appropriate section of this document, our website at or contact us on You will be working with us under an employment contract and we will need to add you to the company payroll. In order for us to do this most effectively we will need you to: If you work with an Umbrella Company you must ensure that you have a UK bank account so that payments can be made to you via electronic transfer. This website may be useful: com/working-uk-banking.html You should contact HMRC when you arrive in the UK and you will normally be asked to complete a form P86 which will enable them to determine your residence status for tax purposes. More information regarding tax residency and potential liabilities can be found here: Provide us with a P45, or let us know you do not have one, as soon as you possibly can. Provide us with your UK bank account details; the name of the account as it shows on your debit card or cheques, the account number which has 8 digits and your sort code which has 6 digits. In order for us to comply with UK legislation we may require proof of identity from you; your account manager will advise you what may be required. Myths and Facts about Umbrella Companies There are many misconceptions about Umbrella Companies and the HMRC rules that surround them. Some of these misconceptions, if believed, could leave you with a large tax bill and possibly, equally found on HMRC s website for full details please visit our website. Input details of your hours/days worked and your expenses to our online timesheet once a week or once a month. Our highly advanced online systems will then immediately and automatically generate an invoice which will then be forwarded to your agency/client. Leave the rest to us and relax! Starting Out You will be working with ContractorUmbrella under a Contract of Employment. This is a legally binding document which you should read thoroughly before signing. If there is anything contained within the contract that you do not fully understand you should contact your Account Manager who will be happy to go through the contents of the document with you. You will also be provided with the Company Handbook which will provide you with details regarding our company s grievance procedures, Health and Safety information, Equal Opportunities policies etc. Please ensure that you read this document carefully. Before you start work on an assignment ContractorUmbrella will sign a business to business contract with the agency or client with whom the contract has been secured. We will provide you with details of each assignment before commencement. New to the UK? In order to work in the UK you may need a work permit or a visa; you should check whether or not this is the case before you approach an agency or an Umbrella Company. Follow the link to Page&c=Page&cid= You will also need a National Insurance Number which is a personal number that is used to record an individual s National Insurance contributions and credited contributions. You should apply to the Department of Work and Pensions as soon as you begin work. You will have a face to face interview the interview more information can be found here: asp#what Myth: A special dispensation with HMRC means that one Umbrella Company can allow those who work through them to claim more expenses than another. Fact: When an accountant processes expenses he will normally need to record the details on an HMRC form called a P11D and also be able to produce receipts to support those expenses. This creates a great deal of work for an Umbrella Company so they apply for a dispensation from HMRC which allows However, the dispensation does not apply to you, as an employee of the umbrella company and therefore you must keep receipts for any expense that you claim. A dispensation is also not an indica- cost and it must be wholly and exclusively incurred in the performance of the contract. Any amounts quoted on the dispensation are the limits up to which the Umbrella Company can process expense claims without recording them. If the limit shown for accommodation is 95 it does not mean that you can claim this amount each night that you stay away from home; if you only spend 65 you can only claim 65. Myth: I can claim for my breakfast and lunch as an expense. Fact: You can claim actual meal costs whilst you are working at a remote site i.e. away from your normal place of work or when staying away from home overnight but daily claims for meals are not permitted. It is HMRC s belief that you need to eat regardless of whether or not you are at work so the meal costs are not wholly attributable to the contract and can, therefore, not be claimed as an expense. Myth: Some Umbrella Companies retain a high margin but they can guarantee that I will pay less tax. Fact: All Umbrella Companies are controlled by HMRC. The tax you pay is dependent on your personal tax code which determines the level of tax free pay that you are entitled to. National Insurance Remember, a dispensation means that the Umbrella Company does not need to see your receipts; it does not mean that you don t have to have them! The only factor that will affect your take home pay is the margin retained by the Umbrella Company. 8 January :37 PM Page < 4 > 8 January :37 PM Page < 5 >

4 Myth: An online calculator only needs my hourly or daily rate to work out my earnings. Fact: Your net earnings will be affected by your tax code and the expenses that you can legally claim. An online calculator should operate using a standard tax code and a calculator that does not ask for expenses are different. Myth: An Umbrella Company can pay me a minimum wage and dividends which will earn me more money. Fact: can only be paid this way if your contract is IR35 friendly (outside IR35) and you are receiving payment trative control. From 6th April 2007 any involvement from a third party in running a Limited Company (other than accountancy services) would place you under the scope of a Managed Service Company (MSC) If you receive your payments via a third party or your contract fails IR35 (inside IR35) and you are running your own Limited Company, you can only be paid through PAYE. Myth: My contract can be written to fall outside IR35 (or to be IR35 friendly). Fact: in serious trouble. If you are being paid a combination of minimum wage and dividends and HMRC deemed you to fall inside IR35, you would be liable to pay back all the underpaid tax, a penalty and, worst case scenario, you could be prosecuted for tax avoidance. Myth: I can just switch Umbrella Company when I breach the 24 month rule and continue to claim expenses. Fact: Moving Umbrella Company will not change the situation as the rule applies to your actual place of work rather than the company you use. A workplace is deemed as a temporary site providing your attendance lasts no longer than 24 months. After 24 months a workplace is viewed as a permanent site and, if you spend more than 40% or more of your time at the same site you are no longer able to claim travel between home and that place or accommodation expenses. Myth: I am protected from investigation from HMRC by my Umbrella Company Fact: If you claim expenses fraudulently and HMRC becomes aware of it you will be investigated and you will be liable for any underpayments of tax and any associated penalties. It is worth noting that HMRC do investigate at random and no company can offer you protection against investigation. Myth: An Umbrella Company can help me minimise my tax contributions Fact: As an employee of the Umbrella Company, you will be paid via PAYE which means that your tax contributions are pre-determined according to the percentages and allowances decided by HMRC. There are many schemes that promise to reduce your tax liability but, if they do not operate PAYE you if they do, it is highly likely that they are processing amounts as expenses regardless of whether you have incurred a cost which could, again, lead to additional tax liabilities. What is IR35? The IR35 legislation was introduced by HMRC in April 2000 and was intended to combat tax avoidance. working via an intermediary such as a company or partnership. Since the introduction of the legislation determine whether, if it were not for the intermediary, the contractor would be an employee of the end client. The contract must be totally representative of the individual s working practises and would ContractorUmbrella Ltd will be more than happy to conduct a free review of your contract and will What Determines if a Contract is Inside or Outside IR35? HMRC have put together a number of simple questions that you can answer which will help to determine and will therefore fall inside IR35: many employees provide for themselves? However, the legislation is a little more complicated than these simple lists would suggest and we would advise that you have your contract professionally evaluated. For more information please contact info@contractorumbrella.com. What does it mean if I am Inside IR35? IR35 determines the way that you are paid. Before the introduction of the legislation contractors not attract National Insurance contributions. However, HMRC determined that, if a contract falls inside IR35, the contractor would be obliged to draw a salary from their company. For contractors who had a Limited Company, but no staff this meant that they were both employer and employee and subsequently both employee s and employer s National Insurance contributions were payable. An individual employed by an intermediary i.e. an umbrella company must be paid via PAYE regardless of IR35 status. If you are employed by an umbrella company you will be paid through PAYE and both employee and employer contributions for National Insurance will be made from the assignment rate. 8 January :37 PM Page < 6 > 8 January :37 PM Page < 7 >

5 Can I Claim Expenses? Frequently Asked Questions Yes. As an employee of ContractorUmbrella you are able to claim expenses against your assignment. Unfortunately it is not possible to give you an exhaustive list of expenses that you can claim, as this will vary from person to person. However, for something to be an allowable expense the cost must have been incurred wholly and exclusively because of the assignment. We have put together a list of the most commonly claimed expenses here: but, remember, you must be able to be able to prove that the expense was incurred in the course of your duties and you should also ensure that you keep receipts for a period of 6 years. We do undertake random employee expense checks so please be aware that you may be contacted to supply receipts from time to time. Payroll and Taxation Working through an Umbrella Company, you are paid via PAYE which stands for Pay As You Earn, this means that your tax and national insurance contributions are deducted each time that you are paid. The calculations for these deductions are somewhat complicated but, basically, each is taken as a percentage of your earnings. This means that, despite promises to the contrary, your earnings through one Umbrella Company will be exactly the same as through another the only difference will be the margin that the umbrella company retains. PAYE means that your tax liability is calculated each time that you are paid throughout the If you receive payment via PAYE you can expect to receive a payslip each time that you are paid and this should detail the gross assignment value, your gross pay, income tax and National Insurance deductions, the Umbrella Company s margin, your expenses and your net income i.e. what you will be taking home. The payslip should also contain details of any other deductions such as student loan or CSA or any Statutory Payments such as SMP, SSP, SPP or SAP. which will show your earnings for the year as well as the total tax that you have paid. When you leave an Umbrella Company you should also receive a P45 which should be produced as soon as soon as that you have paid. It will also show the tax code that is currently being used for you; this document acts as a way for HMRC to track your employment. The payroll staff at ContractorUmbrella will be more than happy to answer any queries that you have regarding the PAYE system and if you would like an illustration of your earnings please use our online calculator. In a nut Shell, ContractorUmbrella know their stuff. UmbrellaSupermarket Being employed by ContractorUmbrella means that you will not have to spend evenings and weekends poring over your business accounts as we will be taking care of your administration. ContractorUmbrella was established in 2002 and is sister company to the biggest and an unrivalled pool of expertise from which to draw. We have a Company Charter which ensures that all enquiries will be answered within 4 hours (when submitted during business hours) and all telephone enquiries will be answered within 3 rings, by a real person. These, and other, promises are all reinforced by our money-back guarantee. Your salary payment will be made on the same day as we receive funds from your current assignment. Expenses for the period will be processed at the same time and you will receive a payslip by which will give you a complete breakdown of the payment. How much money can I expect to take home? You can obtain an estimate of your earnings from our online calculator. You may find that if you compare calculators on are different. This is usually because the company has made assumptions as to the expenses you will be likely to claim whilst working with them. Obviously, if the assumption is incorrect, which it invariably will be, then that you are comparing like with like and the Umbrella Company in question should be able to give you a you with. The only variable factor in your net pay is the margin retained by the Umbrella Company; all other What happens when I register? When you register you will receive a number of s with money laundering and immigration regulations which you must send to us by post before we will be able to release funds to you. You will also receive a demonstration of our systems and comprehensive notes to help you get started. You will also be contacted by your personal Account Manager who will introduce themselves as your contact within ContractorUmbrella. Your Account Manager is there to answer any queries that you may have or to explain any legislation that you do not understand. What happens if I do not have a P45? Not having a P45 will not necessarily delay your payment 8 January :37 PM Page < 8 > 8 January :37 PM Page < 9 > from you we can pay you using an emergency tax code. Many people think that this means you will pay 20% tax on all your earnings this is not the case that is a basic rate tax code. An emergency tax code means that your tax free to your cumulative earnings. Once we receive your P45 your historical earnings and tax paid are applied and, assuming your P45 does not list your tax code as an emergency code, your tax will then be calculated on a cumulative basis. If there was a gap between your previous and current contracts you may be entitled to a tax rebate this will be worked out through PAYE and will be paid to you as part of your earnings; it will show When will I be paid? As we run a payroll every single working day; we will make payment to you the same day recognized funds clear in our bank account. Where we receive agency remittance advice after midday when funds clear, your payment will be processed the following working day. You will be paid a salary payment on the last working day of each month regardless of whether we have received funds to cover your current assignment. Our normal method of payment is BACs transfer (Bank Automated Clearing System) which is an electronic transfer directly into your appointed bank account. If you need funds urgently we can arrange a Same Day payment which guarantees that the money will arrive in your account on the same day as it leaves ours there is a discounted fee of 12 for this option which will be deducted at source when we make the payment. How will I know when I ve been paid? Our payroll department will a payslip to you when your payment has been processed. The Contractor Umbrella portal will then be updated with a record of the payment. What happens at the end of my assignment? As part of our responsibilities Contractor Umbrella will make every effort to source another assignment for you. More details can be found on our Contract Opportunities page. What if I decide to leave your scheme? Your Contract of Employment requires you to give 4 week s notice which should be given, in writing, to your account manager. How do I know you ll do what you say you ll do? ContractorUmbrella has a unique service charter which means that we give you certain guarantees. Details of the charter can be found on our website:

6 Client Testimonials Our clients come back to us again and again. Here are just a few of their comments about our service: I have been using your services since two with their quality. Indeed, I was not expecting kindness. Every time I ve had a problem, it has been solved promptly by my accountant and there has never been a delay of any kinds in delivering your services. Furthermore, when I moved from an employed position to a self-employed one, I was a little such a process, but the clarity and richness of information provided on your website, together with the professionalism of my accountant, made it extremely easy. Frankly, I would strongly recommend Contractor Francesco Politi West Drayton I have been using Contractor Umbrella, (CU), for over 6 months during my last two contracts. I have found, much to my surprise in these days of poor customer service, that the CU team deliver exactly what they promise. Payment is fast, charges are very reasonable I have recommended CU to numerous people and all of them are very happy with the service they receive. I have had one problem in the last six months. This was not the fault of CU, in fact my Account Manager did not have to become involved at all as the problem was between my agency and the client. Despite this my Account Manager hurried both other parties to sort out the on Contractor Umbrella and its staff. They do that little bit more to make sure that you are Karl Wainwright Lancashire Amazing customer service - ALWAYS live up to their promise of answering the phones within 3 rings, and always a human being answers the phone, and what s more 99 percent of the time its someone who knows what they are talking about, and if not then its not long before someone gets in touch, who DOES know the answer. s are equally as swift on reply, in fact just the other day I had two pay slips sent out to me, and I didn t understand why, I ed back, and copied my Account Manager, and got an back within hours from BOTH of them, and the one from my Account Manager, clearly showed that he had been in touch with the originator of the . Wonderful these days to have such personal, swift and human contact with a company! Now if only you could sort me out with a new John Denley Gloucestershire I started using ContractorUmbrella to handle all my timesheet recording, invoicing, tax issues etc last October after many years trying to manage it on my own as a sole company director, and getting in a right mess. contracting way back in For very little cost I have the minimum amount of paperwork to deal with, its all online, all the questions and problems I have had with agencies, HMRC, fasttrack payment, even one-off contract work, has been dealt with easily and in language I can understand, and invariably in a single, speedy reply. I have my own Account Manager, and I feel like she is my own, even though she is probably handling dozens of accounts, because everything is dealt with on a personal level, and I am made to feel that my questions etc are important to her. As far as I am concerned, a great company with a thoroughly modern professional ethic with a personal touch! What more can I say, I am more than delighted and I trust them 100 percent to Reg Bierne West Lothian As a member of ContractorUmbrella you also receive access to these special offers through our Members Services section: If you have any further questions about using an Umbrella Company, please do not hesitate to contact a member of our team on or us at info@contractorumbrella.com. 8 January :37 PM Page < 10 > 8 January :37 PM Page < 11 >

7 About ContractorUmbrella Ltd ContractorUmbrella is one of the largest and most respected Umbrella Companies in the UK. Established ContractorUmbrella is part of the SJD Group of accountancy companies, which includes SJD Accountancy recommended by the Professional Contractors Group. ContractorUmbrella featured 14th in the FastTrack 100 league table of Britain s fastest growing companies in ContractorUmbrella was awarded the prestigious Investors in People accreditation in the same regardless of your earnings. contracts. Freelancers in the UK and associate members of the Professional Contractors Group the UK s largest trade body for contractors. Customer Service Guarantee. For further information you may like to visit our website at Alternatively you can speak to one of our experts on or us at info@contractorumbrella.com. Alliance Partner Alliance Partner 12 St Peter s Court, St Peter s Street, Colchester, Essex, CO1 1WD Tel: